Introduction According to Ben Levisohn (2008) “ As banks and other syndicated lenders get cold feet about new deals, borrowers turn to nontraditional sources of capital—and face tougher loan terms.” Corporate financial management deals with decisions of a firm related to investment, financing, and dividend. To carry on business, a firm invests in tangible assets like plant and machinery, buildings, and intangible assets like goodwill and patents. This comprises of investment decision. These assets do not come free; one has to pay for them, so a company needs to tap various sources of funds including promoter’s contribution. The investment in assets generates revenues and cash flows for a specific period. The managers of the company can either retain cash with the company for further investment of distribute to owners of the company – the shareholders.
Concepts Reinforced Profit maximization, social welfare and growth are the three principal competitors to the wealth maximization role. Profit maximization requires managers to keep all expenses low. Businessmen are supposed to be socially responsible. They did not live in an ethical vacuum. Moral standards may change as society evolves. Shareholder wealth maximization rule is based on the assumption that other investor groups in the company are unaffected by the latter’s decision. Potential conflict of interest exists between shareholders and bondholders, managers and shareholders, majority and minority shareholders. So, maximizing wealth of one group could be achieved or the expenses of other groups.
Applications to Financial Management Capital Asset Pricing Model (CAPM) is used to estimate expected return from stocks. One source of risk for corporate bonds arises from unexpected changes in the term structure of interest rates. The source of risk arises from changes in default risk in response to changing